The recently signed CARES (Coronavirus Aid, Relief and Economic Security) Act has established a new $349 billion Paycheck Protection Program (PPP) designed to provide relief to small businesses during the COVID-19 crisis.
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Below are answers to commonly asked questions about PPP:
When can I apply?
- Starting April 3, 2020, small businesses and sole proprietorships can apply for and receive loans to cover their payroll and other certain expenses through existing SBA lenders.
- Starting April 10, 2020, independent contractors and self-employed individuals can apply for and receive loans to cover their payroll and other certain expenses through existing SBA lenders.
- Other regulated lenders will be available to make these loans as soon as they are approved and enrolled in the program.
Where can I apply?
Businesses can apply through any existing Small Business Administration (SBA) lender or through any federally insured depository institution, federally insured credit union, and Farm Credit System institution that is participating. Other regulated lenders will be available to make these loans once they are approved and enrolled in the program. Businesses should consult with their local lenders as to whether it is participating. Visit www.sba.gov for a list of SBA lenders.
Who can apply?
All businesses – including nonprofits, veterans organizations, Tribal business concerns, sole proprietorships, self-employed individuals, and independent contractors – with 500 or fewer employees can apply.
Businesses in certain industries can have more than 500 employees if they meet applicable SBA employee-based size standards for those industries.
For this program, the SBA’s affiliation standards are waived for small businesses (1) in the hotel and food services industries, or;
(2) that are franchises in the SBA’s Franchise Directory, or;
(3) that receive financial assistance from small business investment companies licensed by the SBA. Additional guidance may be released as appropriate.
What do I need to apply?
Businesses will need to complete the Paycheck Protection Program loan application and submit the application with the required documentation to an approved lender that is available to process the application by June 30, 2020.
What other documents will I need to include in my application?
Businesses will need to provide your lender with payroll documentation.
How long will this program last?
Although the program is open until June 30, 2020, businesses should apply as quickly as they can because there is a funding cap and lenders need time to process loans.
How many loans can I take out under this program?
What can I use these loans for?
Proceeds from these loans can be used for:
- Payroll costs, including benefits;
- Interest on mortgage obligations, incurred before February 15, 2020;
- Rent, under lease agreements in force before February 15, 2020, and;
- Utilities, for which service began before February 15, 2020.
What counts as payroll costs?
Payroll costs include:
- Salary, wages, commissions, or tips (capped at $100,000 on an annualized basis for each employee);
- Employee benefits, including costs for vacation, parental, family, medical, or sick leave; allowance for separation or dismissal; payments required for the provisions of group health care benefits including insurance premiums; and payment of any retirement benefit;
- State and local taxes assessed on compensation, and;
- For a sole proprietor or independent contractor: wages, commissions, income, or net earnings from self-employment, capped at $100,000 on an annualized basis for each employee.
How large can my loan be?
Loans can be for up to two months of a business’ average monthly payroll costs from the last year, plus an additional 25% of that amount. That amount is subject to a $10 million cap. New or seasonal businesses will use different applicable time periods for their calculation. Payroll costs will be capped at $100,000 annualized for each employee.
How much of my loan will be forgiven?
Businesses will owe money when their loan is due if they use the loan amount for anything other than payroll costs, mortgage interest, rent, and utilities payments over the eight weeks after getting the loan. Due to likely high subscription, it is anticipated that not more than 25% of the forgiven amount may be for non-payroll costs. Businesses will also owe money if they do not maintain their staffs and payrol
- Number of staff: Loan forgiveness will be reduced if businesses decrease their full-time employee headcount;
- Level of payroll: Loan forgiveness will also be reduced if businesses decrease salaries and wages by more than 25% for any employee that made less than $100,000 annualized in 2019;
- Re-hiring: Businesses have until June 30, 2020, to restore full-time employment and salary levels for any changes made between February 15, 2020, and April 26, 2020.
How can I request loan forgiveness?
Businesses can submit a request to the lender that is servicing the loan. The request will include documents that verify the number of full-time equivalent employees and pay rates, as well as the payments on eligible mortgage, lease, and utility obligations.
Businesses must certify that the documents are true and that businesses used the forgiveness amount to keep employees and make eligible mortgage interest, rent, and utility payments. The lender must make a decision on the forgiveness within 60 days.
What is my interest rate?
0.50% fixed rate.
When do I need to start paying interest on my loan?
All payments are deferred for six months; however, interest will continue to accrue over this period.
When is my loan due?
In two years.
Can I pay my loan earlier than two years?
Yes. There are no prepayment penalties or fees.
Do I need to pledge any collateral for these loans?
No. No collateral is required.
Do I need to personally guarantee this loan?
No. There is no personal guarantee requirement. However, if the proceeds are used for fraudulent purposes, the U.S. government will pursue criminal charges.
What do I need to certify?
Businesses need to certify in good faith that:
- Current economic uncertainty makes the loan necessary to support ongoing operation;.
- The funds will be used to retain workers and maintain payroll or to make mortgage, lease, and utility payments;
- Businesses have not and will not receive another loan under this program;
- Businesses will provide to the lender documentation that verifies the number of full-time equivalent employees on payroll and the dollar amounts of payroll costs, covered mortgage interest payments, covered rent payments, and covered utilities for the eight weeks after getting this loan;
- Loan forgiveness will be provided for the sum of documented payroll costs, covered mortgage interest payments, covered rent payments, and covered utilities. Due to likely high subscription, it is anticipated that not more than 25% of the forgiven amount may be for non-payroll costs.